Key Pointers in Software Licensing Agreements

Our recent post highlighted the importance of collaboration and liberalising intellectual property rights (IPRs) within innovation, especially regarding application programming interfaces (APIs) and source codes.

APIs are protected under copyright law, and their usage may fall under fair use. It’s important to differentiate between open-source and proprietary source codes since copyright does not protect fully open-source codes. Identifying which parts of the source code belong to each contributor in collaborative projects is crucial, as the party owning the main code may rely on others’ background data.

Typically, a contracted third party owns the copyright unless specified otherwise in the contract. To secure full rights to a software product, an investor should ensure a copyright assignment in the contract terms or negotiate a licensing agreement. The following pointers should guide you in formulating an agreement for collaboration:

1. Distinction Between Software Licensing and Software as a Service (SaaS):

Understanding the difference between software licensing and Software as a Service (SaaS) is important. A software licensing agreement should include an explicit license grant outlining the licensee’s intellectual property rights. This includes specifying the type of license (exclusive or non-exclusive) and any geographical limitations. Additionally, hosting, maintenance, and technical support should be covered in separate agreements.

In contrast, a SaaS contract should provide access rights rather than a license grant, clearly detailing the types of access permitted. It should also include a Service Level Agreement (SLA) outlining expected service levels, uptime guarantees, and security measures to protect user data. It is advisable not to merge licensing and SaaS agreements to maintain clarity and avoid legal complications.

2. Clarification of “Users”:

The licensing agreement should clearly define the users, detailing who qualifies as a user and how many users are permitted. It should specify the rights granted to users and the costs associated with each user or any additional users. This information can be included as an annex to the agreement, ensuring the terms regarding user additions are transparent.

3. Billing Provisions:

Contracts should clearly outline billing practices, including upfront payments and the timing of periodic billings at the start of each cycle. Additionally, the agreement should specify the consequences of payment defaults, ensuring both parties understand the implications of non-payment.

4. Expectations for Software Functionality:

The contract must specify software functionality requirements and performance benchmarks. The SLA should outline uptime expectations and remedies for service failures for SaaS agreements. Precise definitions of service relationships are essential to prevent future misunderstandings.

5. Upgrades and New Versions:

The licensing agreement must specify the licensed software version and detail how upgrades will be managed. It should outline the notification process for new versions, any associated costs, and changes in functionalities to ensure users are adequately informed. 

6. Implementation Criteria and Dispute Resolution:

The contract should clearly define successful implementation criteria, including timelines and milestones. It must also establish procedures for resolving disputes that may arise during implementation, fostering a cooperative relationship and ensuring smooth project execution.

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